Corporate Governance

ACCA - F1   ACCOUNTANT  IN  BUSINESS

Corporate governance is the way companies are directed and controlled. Good governance ties together interest of every identifiable stakeholder. Governance emphasis on accountability, responsibilities, disclosure and transparency. OECD (Organisation for Economic Co-operation and Development) highlights fundamental principles of corporate governance, which have been adopted as one of the twelve key standards for sound financial system by the Financial Stability forum.

The Organisation for Economic Co-operation and Development published its ‘Principles of Corporate Governance’ in 2004. These are:

• Rights of shareholders: The corporate governance framework should protect shareholders and facilitate their rights in the company. Companies should generate investment returns for the risk capital put up by the shareholders.
• Equitable treatment of shareholders: All shareholders should be treated equitably (fairly), including those who constitute a minority, individuals and foreign shareholders. Shareholders should have redress when their rights are contravened or where an individual shareholder or group of shareholders is oppressed by the majority.
• Stakeholders: The corporate governance framework should recognise the legal rights of stakeholders and facilitate cooperation with them in order to create wealth, employment and sustainable enterprises.
• Disclosure and transparency: Companies should make relevant, timely disclosures on matters affecting financial performance, management and ownership of the business.
• Board of directors: The board of directors should set the direction of the company and monitor management in order that the company will achieve its objectives. The corporate governance framework should underpin the board’s accountability to the company and its members.

Corporate governance framework depends on legal, regulatory, and institutional environment. Corporate governance, ethical practice, corporate awareness and societal interest have impact on reputation and long-term success of organisation. Most countries adopt principle-based approach to corporate governance. Principle-based approach focuses on adherence to best practice and if not complied company needs to explain the cause for non-compliance. Some countries adopt statutory rules-based approach. Every companies within such regime should mandatorily fulfill corporate governance requirements.

ACCA Article: Corporate Governance: The board of directorsand standing Committees